Business Combinations and Asset Acquisitions
|3 Months Ended|
Mar. 26, 2022
|Business Combination and Asset Acquisition [Abstract]|
|Business Combination Disclosure||Business Combination
On February 14, 2022, the Company completed the acquisition of all issued and outstanding shares of Xilinx (the Merger), a leading provider of adaptive computing solutions, for a total purchase consideration of $48.8 billion ($46.4 billion, net of cash acquired of $2.4 billion). The acquisition of Xilinx expands the Company’s product portfolio to include adaptable hardware platforms that enable hardware acceleration and rapid innovation across a variety of technologies. With the acquisition of Xilinx, the Company now offers FPGAs, adaptive SoC products, and ACAP products. The purchase consideration consisted of $48.5 billion of fair value of 429 million shares of the Company’s common stock issued to Xilinx stockholders and $275 million of fair value of replacement equity awards attributable to services rendered pre-combination. As the transaction closed prior to the opening of markets on February 14, 2022, the fair value of the common stock issued to Xilinx stockholders was based on the closing price of the Company’s common stock on February 11, 2022 of $113.18 per share.
The financial results of Xilinx are included in the Company’s consolidated financial statements from the date of acquisition, February 14, 2022, through March 26, 2022, and are reported under the Xilinx segment.
The purchase consideration was preliminarily allocated as follows:
The Company allocated the purchase price to tangible and identified intangible assets acquired and liabilities assumed based on the preliminary estimates of their fair values, which were determined using generally accepted valuation techniques based on estimates and assumptions made by management. The fair values are subject to adjustment for up to one year after the close of the transaction as additional information is obtained. The primary items pending are related to income tax matters. Any adjustments to the preliminary purchase price allocation identified during the measurement period will be recognized in the period in which the adjustments are determined.
Goodwill was primarily attributed to increased synergies expected to be achieved from the integration of Xilinx. None of the goodwill is expected to be deductible for income tax purposes. Goodwill is not amortized to earnings, but instead will be reviewed for impairment at least annually, absent any interim indicators of impairment. Goodwill arising from the Xilinx acquisition was allocated to the Xilinx segment.
Following are details of the purchase consideration allocated to acquired intangible assets:
(1)The fair value of developed technology was determined using the income approach, specifically, the multi-period excess earnings method.
(2)Customer relationships represent the fair value of existing contractual relationships and customer loyalty determined based on existing relationships using the income approach, specifically, the with and without method.
(3)Customer backlog represents the fair value of non-cancellable customer contract orders using the income approach, specifically, the multi-period excess earnings method.
(4)Corporate trade name and product trademarks primarily relate to the Xilinx brand and product-related trademarks, respectively, and the fair values were determined by applying the income approach, specifically, the relief from royalty method.
(5)The fair value of IPR&D was determined using the income approach, specifically, the multi-period excess earnings method.
The fair value of the identified intangible assets subject to amortization will be amortized over the assets’ estimated useful lives based on the pattern in which the economic benefits are expected to be received to cost of sales and operating expenses.
IPR&D consists of projects that have not yet reached technological feasibility as of the Acquisition Date. Accordingly, we recorded an indefinite-lived intangible asset of $970 million for the fair value of these projects, which will initially not be amortized. Instead, these projects will be tested for impairment annually and whenever events or changes in circumstances indicate that these projects may be impaired. Once the project reaches technological feasibility, the Company will begin to amortize the intangible assets over their estimated useful life.
The Company also assumed unvested restricted stock units with estimated fair value of $1.2 billion, of which $275 million was included as a component of the purchase consideration and $951 million will be recognized as expense subsequent to the acquisition.
The Consolidated Statement of Operations include the following revenue and operating income attributable to the Xilinx segment from the date of acquisition, February 14, 2022, to March 26, 2022:
Operating income attributable to the Xilinx segment does not include amortization of acquisition-related intangibles, employee stock-based compensation expense and acquisition-related costs, which are included in the “All Other” segment.
Acquisition-related costs of $208 million were included in the Company’s Condensed Consolidated Statement of Operations and recorded under Cost of sales, Research and development, and Marketing, general and administrative expenses for the first fiscal quarter of 2022. The Company may incur additional acquisition-related costs in the future related to the acquisition.
Supplemental Unaudited Pro Forma Information
Following are the supplemental consolidated financial results of AMD and Xilinx on an unaudited pro forma basis, as if the acquisition had been consummated as of the beginning of the fiscal year 2021 (i.e., December 27, 2020). AMD’s fiscal year ends on the last Saturday in December of each year and Xilinx’s fiscal year ended on the Saturday nearest March 31 of each year. The unaudited pro forma information is presented on the basis of AMD’s fiscal year and combines the historical results of the fiscal periods of AMD and Xilinx. Since AMD’s and Xilinx’s fiscal year ends differed, AMD combined its statement of operations for the fiscal quarter ended March 26, 2022 with that of Xilinx for the three-month period beginning January 2, 2022 through March 26, 2022. Also, AMD combined its statement of operations for the fiscal quarter ended March 27, 2021 with that of Xilinx for the three months ended April 3, 2021.
The unaudited pro forma financial information presented is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition were completed at the beginning of fiscal year 2021 and are not indicative of the future operating results of the combined company. The pro forma results include adjustments related to purchase accounting, primarily amortization of acquisition-related intangible assets, fixed asset depreciation expense and expense from assumed stock-based compensation awards. The pro forma results also include amortization expense of acquired inventory fair value step-up of $184 million in the first quarter of fiscal year 2021 and no inventory fair value step-up expense in the first quarter of fiscal year 2022.
The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable).
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef